30 September 2014

Why China Is the Golden Dragon In the Room That So Few Will Even Discuss

This analysis originally appeared at the USAGold website.

Why China thinks gold is the buy of the century
  by Michael J. Kosares
   Let's start with some big, but digestible numbers:
$3,950,000,000,000 = China’s total foreign exchange reserves

$1,250,000,000,000 = Value of the world’s 31,866 metric tonnes gold reserve at $1220/troy ounce

 $1,280,000,000,000.  = China’s holdings of U.S. Treasuries in its foreign exchange reserves

 $   319,000,000,000. = Value of U.S. 8133 metric tonnes gold reserve at $1220/troy ounce

Now let's delve into what those numbers might mean to the average gold owner...

When it comes to the gold market, China is the dragon in the room. With its nearly $4 trillion in foreign exchange reserves and potential purchasing power, that presence is formidable. 

How formidable?  Consider this:

- China could purchase the total United States gold reserve (8133 metric tonnes) with 8% of its foreign exchange reserves.
- It could purchase the total global gold reserve (31,866 metric tonnes) with 32% of its foreign exchange reserves.

- It could purchase all the gold stored by Exchange Traded Funds (+/- 1750 metric tonnes) with less than 2% of its foreign exchange reserves.

- At $4900 per troy ounce, the value of U.S. gold reserves would match China’s U.S. Treasury holdings of roughly $1.28 trillion. 

- At $4700 per troy ounce, the value of the world’s gold reserves would match China’s total foreign exchange reserves of roughly $4 trillion.

- To put it another way, China could pay double the current price for the world’s total gold reserve and still have nearly $1.5 trillion in foreign exchange reserves.

- China sits atop the list of the world’s foreign exchange holdings.

The United States ranks thirteenth at $133 billion.  For the United States to ascend to the top of the rankings, it would need to revalue its $319 billion gold reserve to almost $4 trillion – or raise the value to just under $15,300 per troy ounce...

There is quite a bit more.  You may read the entirety of Michael's very interesting analysis here.

I think someone could make a valid point that this analysis presumes that China is all that interested in buying gold.

And guess what? They are   They are buying the hell out of it.  And they are encouraging their people to do so as well.

We just don't know yet how much they are buying, and why.  But I am sure we will find out, eventually.    In the meanwhile, no one outside the blogosphere seems to be interested in talking about it, or even admits to knowing it.

Central Banks turned net buyers of gold around 2006 after a long period as leasers and net sellers.  
The only countries that have not visibly gotten with the program are the core members of the Anglo-American banking cartel.  They have been conducting a fairly obvious, and often clumsy, campaign to discourage public interest in gold and silver ownership amongst their own people with varying degrees of success.  
There is much talk of precious metal market manipulation in New York and London.  The leverage in their opaque markets is substantial.  The Fed has stated that it could not return Germany's relatively modest amount of gold being held in custody as requested for seven years.  Apparently it has prior commitments.
There is some seriously weird shit going on in the silver market.   People keep connecting the dots, but no one really has the true picture.  And that is a big strike against the US markets.   You would have to be almost a fool to have any confidence in them and their 'price discovery.' 

The gold and silver story is one of the biggest developments in international monetary relationships in almost forty years, and the whole thing is going on virtually unremarked, unaudited, and unexplained.   It seems like an absolutely lame-brained, misbegotten, monumental government policy error, to try and rig the gold price against a mountain of paper.  And the wiseguys and Wall Street took the baton and ran with it, stuffing their own pockets, and getting themselves and their cohorts stuck in it rather deeply.

Sometimes one might wonder if this hasn't become one of the biggest, Goldfinger-sized, insider trades in history.  You don't need to contaminate the Western gold reserves.  All you need to do is to stealthily hypothecate them to take them out of play.  Poof.  
How would you like to be on the really right side of that trade, supply wise?   And how would you like to be holding the bag, on the wrong side?  
Never waste a crisis. Especially when you are looting a country.
It is hard to fully know anything about the markets in the US because they are so often given to hidden trades and misdirecting statistics.  And this is just the way the powers that be like it.

What could possibly go wrong?